UNITED STATES OF AMERICA
|In the Matter of||: ORDER GRANTING APPLICATION FOR|
|Francis T. Phalen, CPA||: REINSTATEMENT TO PRACTICE AS AN|
On October 2, 1996, Francis T. Phalen, CPA ("Phalen") was suspended from appearing or practicing as an accountant before the Commission as a result of settled public administrative proceedings instituted by the Commission against Phalen pursuant to Section 8A of the Securities Act of 1933, Section 21C of the Securities Exchange Act of 1934 and Rule 102(e)(1)(iii) of the Commission's Rules of Practice.1 This order is issued in response to his application for reinstatement to practice before the Commission as an accountant.
During its 1993 and 1994 fiscal years, Aura Systems Inc. ("Aura") filed with the Commission annual and quarterly reports that described, in false or misleading terms, its success in developing new commercial markets for products using its proprietary electromagnetic technology. At all relevant times, Phalen was senior vice president and chief financial officer of Aura, and was thus responsible for the preparation of Aura's financial statements which were filed with the Commission.
For its 1993 and 1994 fiscal years, Aura recognized material amounts of revenue on two transactions that were unrelated to its proprietary technology, which, prior to 1990, generated substantially all of Aura's revenues through contracts with the U.S. government and military defense contractors. These transactions accounted for approximately 22% and 11% of Aura's fiscal 1993 and 1994 revenues, respectively. In the footnotes to its fiscal 1993 and 1994 financial statements and in the management's discussion and analysis sections of Aura's related Commission filings, Aura included no meaningful discussion of these transactions, and created the false impression that its revenues, and the related increases in such, involved sales of products manufactured by Aura or products that incorporated Aura's proprietary technology. Furthermore, the lack of substantive disclosure created the misleading impression that Aura was succeeding in its strategy to develop expanded commercial markets for its products and services, in light of declining military demand for such. Phalen was responsible for and participated in drafting the narrative portions of Aura's financial statements and Commission filings, and, therefore, was responsible for the false and misleading disclosures included therein.
On the basis of information supplied, representations made, and undertakings agreed to by Phalen, it appearing that Phalen has complied and will continue to comply with the terms of the order suspending him from practice before the Commission as an accountant, that no information has come to the attention of the Commission relating to his character, integrity, professional conduct or qualifications to practice before the Commission that would be a basis for adverse action against Phalen pursuant to Rule 102(e) of the Commission's Rules of Practice, and that Phalen's offer to condition his reinstatement on his undertaking that, if reinstated, he will comply with the terms of the October 2, 1996 suspension order in his practice before the Commission as an accountant, is fair and in the public interest, it is accordingly,
ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that Francis T. Phalen, CPA is reinstated to appear and practice before the Commission as an accountant.
By the Commission.
Jonathan G. Katz
1 See Accounting and Auditing Enforcement Release No. 839, dated October 2, 1996. Phalen was permitted, pursuant to the order, to apply for reinstatement after three years upon making certain showings.
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